Ateam Holdings Co., Ltd. (3662) Earnings Call Transcript & Summary

Thank you for watching Ateam Holdings Fiscal Year 2026 Second Quarter Earnings Call. Second quarter highlights are shown on the slide. I will explain these figures later. The sequence will be reporting of the financial results, performance review and topics. This is the second quarter consolidated financial summary. Adjusted EBITDA performed generally as forecasted. Due to increased costs associated with shareholder benefit program, profit decreased year-on-year. Due to the impact of crypto asset price fluctuations, both ordinary income and net income decreased. Revenue was JPY 5.789 billion. Adjusted EBITDA was JPY 228 million. Ordinary income was minus JPY 19 million. Quarterly net income was minus JPY 65 million. This is the progress of revenue and profits. Revenue is at 46% and adjusted EBITDA is at 34.4%. Third quarter is our busiest period, so we expect to see progress at that stage. We've included again the information about how the fluctuations of crypto assets, which we discussed at the beginning, will have an impact. Currently, the price of crypto assets has dropped compared to before. As shown in the red box to the right, when crypto assets fall, the provision for sales promotion decreases. Therefore, operating income increases. However, the valuation of these assets decreases, resulting in a valuation loss and a decrease in ordinary income. As shown in this graph, Bitcoin and other crypto assets fell from JPY 17 million to JPY 12 million. Operating income was JPY 319 million, but the valuation loss on crypto assets was JPY 321 million. Consequently, ordinary income was minus JPY 19 million. This page shows the revenue and adjusted EBITDA for the Digital Marketing segment and the Entertainment segment. Digital Marketing revenue was JPY 4.778 billion; adjusted EBITDA, JPY 464 million, and operating income was JPY 572 million. Meanwhile, entertainment revenue was JPY 1.011 billion; adjusted EBITDA, JPY 158 million; and operating income was JPY 158 million. This is the quarterly performance trend of Digital Marketing business. Both year-on-year and quarter-on-quarter, revenue increased slightly. Our D2C businesses, such as cosmetics and pet food performed well, but some media businesses struggled, resulting in only a slight increase in revenue. Regarding revenue, there was a deconsolidation due to the transfer of shares in Ateam Finergy, but overall, it remained flat. As shown here, adjusted EBITDA was flat year-on-year, but the increase in profit due to increased revenue in the D2C business supported the segment profit. Also, compared to last year, 3 companies have been consolidated through M&As. As written in small print on the bottom right, WCA, Strainer and Signity have been added. Next is the quarterly performance trend of the Entertainment business. Existing titles are trending down, resulting in a year-on-year decrease in revenue. Revenue increased quarter-on-quarter due to the busy year-end and New Year holiday period. Regarding adjusted EBITDA, the efficient operation of existing titles and collaborative projects compensated for the downtrend. Some projects have been terminated due to external factors, but overall, profitability was maintained. The graph on the left shows the ratio of collaborative projects against revenue, and on the right is the overseas revenue ratio. It is currently 39%. This is the consolidated quarterly trend. Since around last fiscal year, we have been conscious of quarterly profit. And as a result, we were profitable again this quarter. Once again, these are the topics for the second quarter of 2026. First, in terms of finance, there has been a change in the capital structure due to the bank borrowings. Previously, we set this as a target or policy for our future financial structure. Currently, as shown on the left, DER is 0.3x and the cost of capital is 6.5%, but we want to shift to the target state on the far right. To achieve this, we will increase borrowings and invest in M&As to increase EBITDA. Then we will reinvest that into M&A and continue this cycle of increasing EBITDA. This is the capital structure on the balance sheet we expect to have if the medium-term management plan makes a progress as planned. The borrowings on the right is JPY 10 billion and on the left, JPY 11 billion. Net asset will decrease and will be compressed. On the left is the balance sheet from the previous fiscal year. Currently, since we have borrowed approximately JPY 1 billion related to the M&A of Signity, this is what our capital structure looks like. We will proceed based on the capital plan mentioned earlier. Now let's look at business topics. This is about micro CMS and paddle, which have recently joined the group through M&As. This is so-called a headless CMS. It is a service based on SaaS model that mainly offers a management screen for websites. Ever since it joined the group, MMR has increased by 67%, demonstrating remarkable growth. The number of companies using the service has now exceeded 13,000. Secondly, partner marketing. We have expanded our network of partnership, and now have over 100 partner companies that we work with. Thirdly, we have been strengthening our corporate sales. We believe that these efforts have led to this growth. Next is Paddle, which develops an app that allows users to earn crypto assets by walking. It is ranked third in Japan for crypto asset apps. After joining the group, they expanded globally, releasing the U.S. version in July 2025. Furthermore, as a result of various collaborative projects, its sales increased by 54%. These 2 companies have grown remarkably well since the acquisitions. Now let's move on to the topics in the digital marketing segment. In our D2C business, sales of our skin care brand, lujo is growing significantly, exceeded 1.8 million units sold. Sales channel is not limited to our own e-commerce site. They are also available on e-commerce marketplaces, such as Rakuten and Amazon and recently at physical stores such as Matsumoto Kiyoshi and Sugi Pharmacy. Thirdly, we released a new hair care brand called Rechispa. This is a non-foaming shampoo, a so-called cream shampoo. It leaves hair very moisturized. It has become a very popular product. This is another product in the D2C domain, the dog food Obremo. Obremo's main product is what's commonly called kibble. However, this product is a soft, slowly cooked vegetable stew, primarily made with vegetables. Therefore, the service concept is soft and skewed in contrast to kibble and crunchy. The types of vegetable change seasonally. It is sold alongside our existing kibble. Looking at the past year, we've had products like sunny potatoes in spring, colorful bell peppers in summer, sweet potatoes in autumn and pumpkins in winter, allowing many dog owners to enjoy seasonal ingredients. And then there's the engineer-focused information site, GitTap. Currently, it has around 1.2 million members nationwide, making it the largest engineer site in Japan. Every year, leading up to Christmas, we hold a competition or a contest where members post various articles. It's called Advent calendar. This time of the year, users post a lot of different articles. And this past year, we had a record number of submissions. As stated here, 23,260 submissions with a total of 10,645 unique participants, a significant number of people contributed. The prevailing trends included AI, machine learning and data science. Compared to the previous year, the number of participants increased by approximately 2.5x, and the number of calendar entries doubled, demonstrating considerable growth. Next, we have a new TV commercial for Hikkoshi Samurai. Hikkoshi Samurai has always been promoted by an idol, called Yoyakun. Until now, both the first and second generations were just one Yoyakun, but with the third generation, Yoyakuns, an idol group has been formed. They are a Reiwa era idle group and their new song is now available on Karaoke. There are 9 hearts lined up, which is the same number as the number of members. It's a lot of fun to sing at Karaoke. So please check it out on YouTube and memorize the song, if you'd like. Now this is the 2026 performance and dividend forecasts. Revenue is JPY 24.5 billion, adjusted EBITDA JPY 1.5 billion, and EBITDA is JPY 1.3 billion. So the forecasts remain unchanged. This is the profit distribution or dividends, and we will be paying dividends twice a year. The interim and year-end dividends are JPY 14 each for a total of JPY 28. The dividend has been increased from JPY 22 in the previous period to JPY 28. As we have explained before, this is our shareholder return policy during our midterm management plan. Shareholder returns will amount to JPY 4 billion to JPY 5 billion in total, and we have introduced a progressive dividend to achieve total return ratio of 100%. As shown on the right, we will continue to consider flexibly, including share buybacks. Another form of shareholder return is shareholder benefit program. Shareholders who hold 5 units or 500 shares or more, will receive a QUO-card worth JPY 10,000 twice a year for a total of JPY 20,000 as a benefit. This concludes my explanation.